Taxpublishers.in - Monday Corner Answer to the Quiz for the week (24 Jun 2024)

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Quiz for the week (24 Jun 2024): Akash is a resident individual (age 66) with monthly pension of Rs.60,000 throughout the financial year 2023-24. He has a residential property which is let out for a monthly rent of Rs.20,000. He paid Rs.30,000 by cash on 13th June, 2023 as municipal tax which consisted of Rs.6,000 being penalty (payable every year) for deviations in construction from the approved plan. A sum of Rs.15,000 towards municipal tax is still outstanding for the FY 2023-24. He borrowed Rs.5 lakhs as loan for purchase of plot in which construction is made and for which he pays interest @9% per annum. The entire loan is still outstanding. He incurred Rs.40 lakhs towards construction of the building. He has not paid the builder Rs.10 lakhs for which he pays interest @12% per annum from FY 2022-23. Decide the tax consequence for the above facts for the financial year 2023-24. Best Answer : From the facts given in the query, what is required is to explain the consequences. (i) The pension income is liable to tax under the head 'salary' with standard deduction of Rs.50,000 both under the default regime contained in section 115BAC and the old regime. (ii) Payment of municipal tax by cash is eligible for deduction though the penalty component Rs.6,000 is not eligible. Thus, Rs.24,000 is eligible for deduction while computing income from 'house property'. (iii) The outstanding amount of municipal tax is not eligible for deduction. It is deductible on actual payment basis. (iv) Interest on moneys borrowed for purchase of plot is also deductible under section 24(b). However, keeping a vacant plot and paying interest on moneys borrowed would not be deductible. [CIT v. Amrit Lal Adlakha (2007) 11 SOT 674 (Asr.)] (v) Interest on unpaid purchase price is also eligible for deduction under section 24. If the assessee has a written agreement and able to substantiate the interest liability payable to builder, it is eligible for deduction. (vi) Income from let out property would be computed by deducting municipal tax actually paid Rs.24,000 and deduction @ 30% would result in Rs.1,51,800 (Rs.2,40,000 less Rs.24,000= Rs.2,16,000 less 30% being Rs.64,800= Rs.1,51,200). (vii) Interest on moneys borrowed in respect of plot Rs.45,000 and unpaid construction cost @12% on Rs. 10 lakhs being Rs. 1,20,000 aggregating to Rs. 1,65,000 would also be eligible for deduction. Thus, the net loss from let out property would be Rs.13,800. (viii) This net loss is eligible for set off against pension income if opted for old regime. However, if accepted default new regime, it is not eligible for set off. Obviously, default new regime is advantageous to the assessee.

Quiz for the week (24 Jun 2024):

Akash is a resident individual (age 66) with monthly pension of Rs.60,000 throughout the financial year 2023-24. He has a residential property which is let out for a monthly rent of Rs.20,000. He paid Rs.30,000 by cash on 13th June, 2023 as municipal tax which consisted of Rs.6,000 being penalty (payable every year) for deviations in construction from the approved plan. A sum of Rs.15,000 towards municipal tax is still outstanding for the FY 2023-24.

He borrowed Rs.5 lakhs as loan for purchase of plot in which construction is made and for which he pays interest @9% per annum. The entire loan is still outstanding. He incurred Rs.40 lakhs towards construction of the building. He has not paid the builder Rs.10 lakhs for which he pays interest @12% per annum from FY 2022-23.

Decide the tax consequence for the above facts for the financial year 2023-24.

Best Answer :

From the facts given in the query, what is required is to explain the consequences.

(i) The pension income is liable to tax under the head 'salary' with standard deduction of Rs.50,000 both under the default regime contained in section 115BAC and the old regime.

(ii) Payment of municipal tax by cash is eligible for deduction though the penalty component Rs.6,000 is not eligible. Thus, Rs.24,000 is eligible for deduction while computing income from 'house property'.

(iii) The outstanding amount of municipal tax is not eligible for deduction. It is deductible on actual payment basis.

(iv) Interest on moneys borrowed for purchase of plot is also deductible under section 24(b). However, keeping a vacant plot and paying interest on moneys borrowed would not be deductible. [CIT v. Amrit Lal Adlakha (2007) 11 SOT 674 (Asr.)]

(v) Interest on unpaid purchase price is also eligible for deduction under section 24. If the assessee has a written agreement and able to substantiate the interest liability payable to builder, it is eligible for deduction.

(vi) Income from let out property would be computed by deducting municipal tax actually paid Rs.24,000 and deduction @ 30% would result in Rs.1,51,800 (Rs.2,40,000 less Rs.24,000= Rs.2,16,000 less 30% being Rs.64,800= Rs.1,51,200).

(vii) Interest on moneys borrowed in respect of plot Rs.45,000 and unpaid construction cost @12% on Rs. 10 lakhs being Rs. 1,20,000 aggregating to Rs. 1,65,000 would also be eligible for deduction. Thus, the net loss from let out property would be Rs.13,800.

(viii) This net loss is eligible for set off against pension income if opted for old regime. However, if accepted default new regime, it is not eligible for set off. Obviously, default new regime is advantageous to the assessee.